Green Bonds: The Next Generation in Clean Energy Financing

There is much at stake when it comes to global climate change. Which is why, in order to avoid the consequences of a warmer planet, maintaining the current global temperature is paramount. In order to do so, the International Renewable Energy Agency (IRENA) estimates investments in clean energy need to be scaled up by the end of the decade, and that global annual investment in renewable energy needs to double from current levels to over USD $500 billion a year over the next four years. As governments and clean energy developers search for investors eager to fund renewable energy projects, financing vehicles play a large role in funding the development of renewable projects. While yieldcos and securitizations have traditionally played a large role in solar financing, a new financial vehicle is gaining popularity; green bonds.

The rapid rise of green bonds as a popular financial vehicle demonstrates investor’s appetite for sustainable investments and an opportunity to fund new clean energy projects. Unheard of until a few years ago, green bonds fund projects that have positive environmental and/or climate benefits. The majority of these bonds are linked to assets. The Climate Bonds Initiate reports that $130 billion dollars were issued in outstanding green bonds related to clean energy by a mix of public, government and corporate actors by the end of 2015. Furthermore, experts suggest the total green bond sector, including investments in transportation and other sustainability projects, could reach a trillion dollars but 2020. If this market is a slippery slope, then investors have definitely slipped.

The appetite for these type of financial vehicles continuously grows from institutional investors and corporate treasuries. Their motivation is incentivized by investors focused on integrating environmental and ethical practices into their investment choices. Corporate bond issuance continues to grow as new corporations issue green bonds every year. Companies such as Iberdrola, AP Renewables, Solar City, Southern Power Company, Vestas and dozens of others have all recently issued renewable energy green bonds.

To make renewable energy investment the standard and not the exception, IRENA continues, “To mobilize private investment and close the power sector investment gap of USD $133 billion per year to 2020, an effective strategy is needed. It would focus on risk mitigation instruments and structured finance tools to develop a strong pipeline of projects.” In addition, IRENA says these financial tools “need to be tailored to each phase of renewable energy project cycle (planning, construction, and operation) and include private and public actors.”

However, these tools are not limited to the different financial vehicles themselves but also include software and information systems which help manage these investments. Financial management solutions will help streamline management of green bond as these investments increase in complexity and scale. Systems and tools that have data, documents, models and workflow all in one system will be increasingly valuable to any investor managing a portfolio of green bonds. Overall, as green bonds continue to grow, financing the next revolution clean energy projects, it will be essential that green bond investors have the right systems that manage their investments effectively. Not only are those who wish to earn income off these projects counting on their success, but anyone wishing to avoid a hotter, 2⁰C world is counting on their success as well.